Has China left behind traditional fixed growth targets?

Lou Jiwei, Xi Jinping and Zhou Xiaochuan

“Isn’t it now time for China to abandon the concept of a growth target?”

That was the question I asked Chinese Finance Minister Lou Jiwei this week at the 15th annual China Development Forum, which brings together top Chinese officials and an international delegation of academics, leaders of multilateral organizations, and business executives. Having attended the CDF since former Premier Zhu Rongji initiated it in 2000, I can attest to its role as one of China’s most important platforms for debate. Zhu welcomed the exchange of views at the Forum as a true intellectual test for China’s reformers.

It was in that spirit that I posed my question to Lou, whom I have known since the late 1990’s…I have always found him to be direct, intellectually curious, a first-rate analytical thinker, and a forward-looking advocate of market-based reforms. He is cut from the same cloth as his mentor, Zhu…

While it may seem like splitting hairs, continuing to frame the economic goal as a target sends a message of determined and explicit guidance that now seems at odds with the government’s market-oriented intentions. Wouldn’t dropping the concept send a far more powerful message? Isn’t it time for China to let go of the last vestiges of its centrally planned past?

Lou’s response: “Good question.”

China, he went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list…

This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown…

RTFA. Few economists have the experience, personal knowledge of Stephen Roach on China. I mentioned in a recent post about the fight against corruption that economics and commerce fit more into my personal interests. You may find the topics dull as a hoe handle; but, if you haven’t curiosity about what’s going on in the whole world and how events will affect your own life – you may as well settle back and let some priest or pundit run your life.

Here’s where Doctor Roach ends up on this particular occasion. For more, read his latest book, Unbalanced: The Codependency of America and China.

Since Deng Xiaoping’s reforms of the early 1980’s, less and less attention has been paid to the numerical targets of central planning…China’s most senior fiscal and monetary policymakers – Lou Jiwei and Zhou Xiaochuan – are close to taking the final step in the long journey to a market-based economy. Their shared interpretation of flexible growth targeting puts them basically in the same camp as policymakers in most of the developed world. The plan is now a goal-setting exercise. From now on, fluctuations in the Chinese economy, and the policy responses that those fluctuations imply, need to be considered in that vein.

Japan takes a step forward

For three years economic policy throughout the advanced world has been paralyzed, despite high unemployment, by a dismal orthodoxy. Every suggestion of action to create jobs has been shot down with warnings of dire consequences. If we spend more, the Very Serious People say, the bond markets will punish us. If we print more money, inflation will soar. Nothing should be done because nothing can be done, except ever harsher austerity, which will someday, somehow, be rewarded.

But now it seems that one major nation is breaking ranks — and that nation is, of all places, Japan.

This isn’t the maverick we were looking for. In Japan governments come and governments go, but nothing ever seems to change — indeed, Shinzo Abe, the new prime minister, has had the job before, and his party’s victory was widely seen as the return of the “dinosaurs” who misruled the country for decades. Furthermore, Japan, with its huge government debt and aging population, was supposed to have even less room for maneuver than other advanced countries.

But Mr. Abe returned to office pledging to end Japan’s long economic stagnation, and he has already taken steps orthodoxy says we mustn’t take. And the early indications are that it’s going pretty well…

…While getting out of a prolonged slump turns out to be very difficult, that’s mainly because it’s hard getting policy makers to accept the need for bold action. That is, the problem is mainly political and intellectual, rather than strictly economic. For the risks of action are much smaller than the Very Serious People want you to believe…

Enter Mr. Abe, who has been pressuring the Bank of Japan into seeking higher inflation — in effect, helping to inflate away part of the government’s debt — and has also just announced a large new program of fiscal stimulus. How have the market gods responded?

The answer is, it’s all good. Market measures of expected inflation, which were negative not long ago — the market was expecting deflation to continue — have now moved well into positive territory. But government borrowing costs have hardly changed at all; given the prospect of moderate inflation, this means that Japan’s fiscal outlook has actually improved sharply…

Whatever his motives, Mr. Abe is breaking with a bad orthodoxy. And if he succeeds, something remarkable may be about to happen: Japan, which pioneered the economics of stagnation, may also end up showing the rest of us the way out.

I’m not familiar enough with the political side of Japan’s culture to understand what inhibited the administration immediately preceding Abe’s from implementing the sort of Keynesian reforms most modern economists understand and endorse. I presume they hadn’t confidence in their authority – perhaps parliamentary opposition was infected with the same demagogue’s disease as our own Congress, e.g., self destructive class loyalties.

Regardless. Change is already perceptible. Both the business community and working class families have a bit more hope. Shinzo Abe’s party is as capable of screwing up reform as any other assembly of conservatives; so, the jury will be out for a while.

The process is worth a wry smile from this side of the Pacific since neither party parked next to the Potomac has sufficient courage or understanding to try the same.

Saudis forced to divorce, reunited by court – progress!

Mansour Al Timani, with his daughter, Nuha

A Saudi couple forced to divorce on grounds they were not from equal tribal backgrounds has been reunited by a new court created as part of judicial reforms.

The marriage of Mansour al-Timani and his wife Fatima Azzaz was annulled after Azzaz’s half brothers persuaded judges at a first instance court in 2006 that Timani’s tribal background was not prestigious enough for his wife’s family.

The case drew international criticism from human rights groups, but a new cassation court, created under reforms instituted by King Abdullah, has said the couple may be reunited…

“I hope that with this ruling, our authorities will close once and for all this issue of inequal tribal backgrounds. Islam does not allow it,” Timani added.

Saudi Arabia, the world’s top oil exporter and home to Islam’s holiest sites, imposes a strict version of mainstream Sunni Islam. The ruling Al Saud family accords the religious establishment wide powers in the justice system and education.

“Wide powers” translated into other dialects means “Keep us in power and you can run all the superstitious power games you wish to!”

Pentagon approves reforms to rein in weapons costs


Spurred by massive cost overruns and chronic schedule delays, the Pentagon’s chief weapons buyer has approved the first major changes in the Defense Department’s acquisition policies in five years.

“Our policies must be more disciplined and effective to ensure that results are more predictable and that we are better stewards of taxpayer dollars,” John Young, defense undersecretary for acquisition, technology and logistics, said in a statement.

Man. Is he really that afraid of Obama busting his balls?

Among the changed rules, which will affect Lockheed Martin Corp, Boeing Co and other major defense contractors, they call for:

— each program to go through a major review to ensure it is based on approved requirements and a rigorous assessment of alternatives.

— use of prototypes of the system or key components, which demonstrate technologies and prove they work before engineering development begins.

— more effective test and evaluation to ensure early detection and correction of problems.

How about the part where porkbarrel politicians have supreme decision-making powers?

Teen conviction rules A-grade student out of medical school

An A-grade student from one of the poorest areas in the country has had an offer of a place on a prestigious medical course withdrawn after admissions officers ruled that a spent criminal conviction meant he could not be trusted to become a doctor.

Majid Ahmed, 18, from Little Horton in Bradford, lost an appeal against the decision by Imperial College London to bar him from its medicine degree, a move that youth justice charities labelled discriminatory and MPs called unfair.

Ahmed was convicted of burglary in 2005 and ordered to serve a four-month referral order for community service. His conviction is spent and he has moved schools, volunteered with disability charities and won four A grades at A-level.

Imperial offered him a place for study this academic year, an offer which was withdrawn after he wrote to tell the college of his conviction. The university said the decision had been made to uphold trust in the medical profession.

I hope you didn’t expect school administrators in Britain to be in touch with reality? The function has devolved into a beancounter specialty, grounded in devotion to bureacracy.